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FSA review of with-profits - rebuilding consumer confidence

Article date: 26 May 2002

Norwich Union agrees with today's call by the Financial ServicesAuthority (FSA) for greater transparency across the industry onwith-profits policies.

As a leading provider of with-profits products, the companybelieves that the initiatives proposed will go a long way towardsrebuilding confidence in with-profits and addressing many of thecriticisms levied.

Norwich Union has led the market in improving the understandingof with-profits as an important investment vehicle for manyconsumers. The company ALREADY provides comprehensive informationto policyholders each year about with-profits, including:

"With-profits continues to be a suitable investment choice forconsumers wanting to benefit from an investment in equities withoutthe short-term volatility of the stock market."

Press office contacts

Out of hours

James Evans, head of media relations

08703 66 68 78

07790 487105

Ian Beggs, media relations manager

08703 66 68 71

07790 487533

Notes to editors

Norwich Union is the UK's largest insurer. It is the UK'slargest provider of life, pensions and investment products and oneof the leading IFA providers. IFAs provide around 75% of thecompany's long-term savings business.

In 2001, UK financial services providers sold investments to atotal value of around £63bn, of which £20bn was invested inwith-profits.

Of the total with-profits investments, Norwich Union has anapproximate 18% market share. Norwich Union has around 3.5 millionwith-profits policy holders and with-profit funds under managementof around £50 billion.

Norwich Union has strategic alliances with building societiesand other leading UK brand names including Tesco Personal FinanceLimited and The Royal Bank of Scotland Group.

Norwich Union proactively discloses the following informationto all with-profit customers each year:

How the money is invested: The percentage of the fundcurrently invested in shares and property is 73%. The targetpercentage for the fund to be invested in shares is between 65%and 75%.

Full breakdown of the investment split of the fund:

UK shares

48 %

International Shares

14 %

UK Fixed Interest

13 %

Property

11 %

Corporate Bonds

9 %

International Bonds

3 %

Cash

2 %

Investment returns on the fund over the last five years:

Year

before tax*

after tax**

1997

20.8 %

18.2 %

1998

18.6 %

16.1 %

1999

18.5 %

16.0 %

2000

-1.1 %

-0.7 %

2001

-9.6 %

-8.1 %

*Appropriate to pension policies. **Appropriate to savingspolicies.

An explanation of smoothing and how payouts are calculated:

In normal financial conditions we aim to ensure that totalreturns to policyholders on equivalent policies do not change bymore than 10 % one year to the next.

In normal conditions we aim on average to return 100 % ofasset share. In any one year payouts will represent not less than90 % and not more than 110 %.

In overall terms we aim to return to policyholders a fairshare of the assets of the fund (known as the asset share).

We forecast average payouts for 2001 would be 109 % of assetshare based on an anticipated investment return of 7.25 % beforetax. The actual return was ­9.6 %. As conditions were far fromnormal we needed to cut payouts by an average of 15 % rather thanthe normal up to 10 %. We also recognised that to achieve areasonable level of smoothing of result we would need to exceedthe 110 % asset share limit in some cases.

In 2001 we paid out on average 111 % of asset share.

For 2002 we anticipate paying out 113 % based on an assumedinvestment return of 7.25 % before tax.

Bonuses:

An explanation of what the bonuses are and how they arecalculated.

The above information has been taken from the annualwith-profits bonus notification mailing. All the figures relateto the 2001 bonus mailing. A full copy of the document isavailable on request.